Buying A Short Sale Property???

What is a Short Sale or Short Payoff? A short sale (also known as a short payoff) is when a lender or lenders accept a discounted payoff on an existing mortgage to avoid the cost of a foreclosure. In other words, when a homeowner owes more than can be collected through a real estate sale, a short sale allows them to sell their property to avoid a foreclosure for themselves and the lender.

Who Benefits? A short sale can be a win-win situation for all parties. It can minimizes the time and costs associated with a foreclosure by the lender. By accepting a short sale, the lender experiences savings on average of $14,000 and reduces the time to receive payment by approximately 6 months. In turn, this provides homeowners the opportunity to avoid or minimize the damaging affects of a foreclosure. Helping the homeowner through a short sale can provide a great investment for the buyer as well.

The Benefit to Homeowners With more and more homeowners refinancing, taking out lines of credit and buying property with little or no money down, we will find more homeowners unable to afford their homes. This is the homeowner's best opportunity for a fresh start. Homeowners who owe more on the property than it is worth, or those who do not have the means to pay for the closing costs may qualify.

The Benefit to Lenders With little or no money down mortgages and a rising interest rate, we will see more homeowners with no choice but to short sale their property. Anytime a lender is forced to foreclose on a property, not only do they incur costly legal fees, but they also take back a problem loan which affects their overall business infrastructure. Lending institutions realize that the best way to "put a dent" in this never ending problem is to negotiate and accept short sale offers. Don't get me wrong. This is not an easy transaction to complete as you will see in the next paragraph.

The Future of Short Sales Short Sales will only grow as an alternative to foreclosure in the future. Many high risking lending scenarios are present today. Homeowners placing a 5% down payment, making interest-only payments, holding adjustable rate mortgages or in some cases placing 0%-3% down through government programs such as Nehemiah's down payment assistance, the government's new ADDI (American Dream Down payment Initiative) will create an increased demand for short sales in the future and are projected to more than double the estimated volume of foreclosures within the next 3 years. This is why, in the past few years, lenders have begun to increase their focus on pre-foreclosure and REO properties.

My recent Short Sale Transaction I recently closed a purchase transaction for my seller. His situation was unfortunate, he purchased this home 18 months prior to listing the property. He remodeled the home with over $200,000 in upgrades. His intention was to live in the property for another 5 to 8 years. He lost his job and had to relocate to southern California. After several months and many price reductions, we were able to negotiate a contract with a buyer (The house was overbuilt for the area). The offer was less than the balance of my client's two loans with Wells Fargo. Then we had closing costs, as well as broker commissions. We had no other choice other than a Short Sale. What a nightmare. You would think that having the same lender for both loans would be easier, NOT SO. The right hand didn't know what the left hand was doing. Not only that, they kept playing games. One would say yes for a reduced payoff, and then the other would say no. I had to keep negotiating between the two departments. In the words of a past advertising ad, "Calgon take me away". I also had to be in contact with the IRS, and a contractor who filed a lien on the property. This drama lasted for about 45 days. I spent a minimum of 3 hours per day working out the transaction between lenders, IRS, contactor and the buyer's agent. Not to mention constantly thinking on ways to make it work. I think I made about $1.75 per hour on this one. I was told "no" so many times I've lost count.

What's my advice to a homeowner in trouble or a real estate agent working to negotiate a short sale for a client?

1) Be prepared and take control of the deal.

2) Never take NO for an answer.

3) Be proactive not reactive.

4) Don't just submit offers to the lender without having a game plan.

5) Choose your escrow officer wisely. Make sure they can hang in there with you. If it wasn't for Julie Clothier at First American Title being able to withstand the roller coaster ride, I'm not sure this transaction would have closed.

6) Choose your real estate agent wisely. If they do not have experience with short sales or foreclosures, you risk losing everything.